High housing
prices decrease income mobility and ultimately hurt the U.S. economy, according
to a new study by Daniel Shoag, associate professor of Public Policy at
Harvard's Kennedy School, and his colleague Peter Ganong.
Sales of
single-family homes in the U.S. rose by 5.7% in September, the highest rate
since April 2010.
Most would argue
that these numbers are indicative of an improving economy -- an increase in
housing sales leads to an increase in housing prices. Shoag would argue the
opposite.
"What higher
housing prices have done," Shoag tells the Daily Ticker, "is they've taken half
the country off of this income convergence track." Certain U.S. cities have
"become prohibitively expensive for low-skilled workers and they've sort of
become segregated places full of high-skilled workers. That's contributed to
regional income inequality and played a part of the rising income inequality
that we see."
Laborers are
being priced out of cities like San Francisco and New York City, where housing
prices are high, and migrating to smaller cities like Las Vegas and Phoenix
where housing prices are cheaper. This has created a two-tier society:
high-skill, high-wage workers living in large, metropolitan cities and
low-skill, low-wage workers coalescing in economically depressed regions. This phenomenon slows economic growth,
Shoag argues, because one's total income impacts national
GDP.
"San Francisco
and Boston are rich places," he says, "but people aren't moving to those places
anymore."
Since 1980 the
rate of income convergence has been stagnant. The average income of U.S. workers
has remained flat for the past 30 years and the migration of low-skilled workers
across states has also slowed significantly.
This hasn't
always been the case. Between 1880 and 1980 low-skilled workers moved to
wealthier states and the average incomes between states converged by an average
of 1.8% per year. The Daily Ticker
U.S. inequality
is at its highest point for nearly a century. Those at the top are enjoying a
larger share of the national pie while the number below the poverty level is
growing. Concentrated wealth translates into political clout -- the power to use
campaign contributions to rent politicians and tilt the rules of the economy in
their favor. In America
today, the wealthiest one percent of all Americans have a greater net worth than
the bottom 90 percent combined. According to a
June report by the Organization for Economic Cooperation and Development, the
U.S. has among the highest income inequality and relative poverty among the 34
countries that make up the consortium of developed
countries. The wealthiest 1
percent captured 93 percent of per-capita real income gains in 2010, according
to an analysis of tax data by Emmanuel Saez, an economics professor at the
University of California at Berkeley. In 2010, 7
percent of all income gains went to the bottom 99 percent of
Americans.
AHT/HJ
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